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access to the system, they can compromise current transactions and payment tokens that can be used to create new transactions. Worse, when customer data is compromised, the customers are exposed to identity theft and must take action to prevent fraudulent use of the compromised accounts. Bitcoin is dramatically different. A bitcoin transaction authorizes only a specific value to a specific recipient and cannot be forged or modified. It does not reveal any private information, such as the identities of the parties and cannot be used to authorize addi‐ tional payments. Therefore, a bitcoin payment network does not need to be encrypted or protected from eavesdropping. In fact, you can broadcast bitcoin transactions over an open public channel, such as unsecured Wifi or Bluetooth, with no loss of security. Bitcoin’s de-centralized security model puts a lot of power in the hands of the end-users. With that power comes responsibility for maintaining the secrecy of the keys. For most users that is not easy to do, especially on general purpose computing devices, such as Internet-connected smartphones or laptops. Whereas bitcoin’s de-centralized model prevents the type of mass compromise seen with credit cards, many end-users are not able to adequately secure their keys and get hacked one by one. Developing Bitcoin Systems Securely The most important principle for bitcoin developers is de-centralization. Most devel‐ opers will be familiar with centralized security models and may be tempted to apply these models to their bitcoin applications, with disastrous results. Bitcoin’s security relies on decentralized control over keys and on independent trans‐ action validation by miners. If you want to leverage bitcoin’s security, you need to ensure that you remain within the bitcoin security model. In simple terms: don’t take control of keys away from users and don’t take transactions off the blockchain. For example, many early bitcoin exchanges concentrated all user funds in a single “hot” wallet with keys stored on a single server. Such a design removes control from users and centralizes control over keys to a single system. Many such systems have been hacked, with disastrous consequences for their customers. Another common mistake is to take transactions “off blockchain” in a misguided effort to reduce transaction fees or accelerate transaction processing. An “off blockchain” sys‐ tem will record transactions on an internal, centralized ledger and only occasionally synchronize them to the bitcoin blockchain. This practice, again, substitutes de- centralized bitcoin security with a proprietary and centralized approach. When trans‐ actions are off blockchain, improperly secured centralized ledgers can be falsified, di‐ verting funds and depleting reserves, unnoticed. Unless you are prepared to invest heavily in operational security, multiple layers of access control, and audits (as the traditional banks do) you should think very carefully before taking funds outside of bitcoin’s de-centralized security context. Even if you have the 236 | Chapter 10: Bitcoin SecurityPDF Image | Mastering Bitcoin
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